Remarks of Deputy Assistant Secretary for Terrorist Financing Jennifer Fowler at the Washington Institute for Near East Policy on U.S. Efforts to Counter the Financing of ISIL

2/2/2015

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WASHINGTON - Good morning, everyone, and
thank you to the Washington Institute for hosting this important
conversation. WINEP has been putting out
some tremendous work on every aspect of the threat posed by the Islamic State
in Iraq and the Levant (ISIL), so it’s an honor to be here today and to shed
some light on how we at the U.S. Department of the Treasury are approaching
this issue.

As part of the international
campaign to degrade and ultimately defeat ISIL, we at Treasury, along with
colleagues throughout the interagency, are leading an effort to attack ISIL’s
financial foundation. We have made
tremendous progress in understanding ISIL’s revenue sources and financial
activities, but we continue to work to fill the remaining gaps in our
knowledge. At the same time, we are
working to prevent ISIL from using the funds it has accumulated, and to disrupt
its access to new funds.

Today I will explain our
current understanding of ISIL's revenues and expenses, outline our approach to
date to counter ISIL's financing, and provide an overview of additional steps
we will take in the coming months.

ISIL's Financial Picture

ISIL’s primary sources of
revenue are derived from (1) robbery and extortion, (2) the sale of oil, (3)
ransom payments for kidnapped victims, and (4) donations from abroad. I’ll address each one of these in turn.

ISIL raises at least several
million dollars per month by robbing, looting, and extorting a portion of the
economic resources in areas where it operates. This estimate excludes
money to which ISIL has access in banks in ISIL-held areas, which I’ll discuss
momentarily. ISIL extorts money in
connection with everything from fuel and vehicles transiting ISIL-held
territory, to school fees for children, all under the auspices of providing
notional services or “protection”. The
effectiveness of ISIL's extortion relies on the threat or use of force within
its operational territory. The economic assets in ISIL-held areas include
banks, natural resources such as oil and phosphates, and agriculture.

Treasury estimates that during
2014, ISIL probably gained access to at least half of a billion dollars from seizing
control of state-owned banks in northern and western Iraq. In addition, ISIL has assumed control over
the accounts of the Shi'a, Christians, and Yazedis, and possibly forces Sunnis
to pay the group 10 percent of their cash withdrawals.

Last year ISIL may have
earned as much as several million dollars per week, or $100 million in total,
from the sale of oil and oil products to local smugglers who, in turn, sell
them to regional actors, notably the Asad regime. While we continue to
map out ISIL’s oil-related activities, we estimate ISIL’s ability to use oil as
a source of revenue is diminishing due to the impact of coalition airstrikes on
the oil-related infrastructure under ISIL control.

In 2014, we estimate that ISIL
earned at least $20 million from collecting ransoms for kidnapped
victims.

Foreign donations represented
an important but comparatively smaller source of revenue for ISIL in
2014. However, externally raised funds are used frequently to finance the
travel of extremists to Syria and Iraq. Of note, at least 19,000 fighters
from more than 90 countries have left their home countries to travel to Syria
and Iraq to join ISIL. This pool of international supporters is a source
from which ISIL receives both physical and some monetary support.

Efforts to Counter ISIL’s Financial Activities

I will now turn to the
international coalition’s efforts to limit ISIL’s ability to use the funds and
other economic assets under its control, as well as restrict ISIL’s ability to
gain access to new funds.

Steps Taken to Restrict ISIL’s Access to the
International Financial System

Foremost among these efforts
have been steps taken to prevent ISIL from accessing the international financial
system. ISIL's control of territory
gives it access to banks that it can potentially exploit to conduct
international transactions. Without restrictions
on financial institutions under ISIL's control, ISIL would be able to more
easily receive foreign funds to finance its activities as well as send payments
abroad to procure weapons and other goods to sustain itself.

The Government of Iraq has
taken some important steps to address this issue, including issuing national
directives to its banks to prevent wire transfers to and from bank branches in
territory where ISIL operates and halt the sale of hard currency to these
banks. This has been important in two respects. First, it prevents an ISIL-affiliated
individual or entity from using a bank under the government’s control to
transact through the domestic or international financial system. Second, banks
operating in ISIL-held territory can no longer receive cash infusions to
finance their operations, which averts potential ISIL exploitation of
additional cash as a source of revenue.

Treasury has been working to ensure
these restrictions remain in force by engaging closely with foreign
counterparts to conduct enhanced due diligence with respect to financial
activity emanating from territory where ISIL operates.

We continue to analyze and
exchange financial information with domestic and foreign partners to identify
illicit financial networks and revenue streams supporting ISIL. This exchange of information provides new
leads, and enhances investigations of domestic stakeholders and foreign
partners seeking to identify elements of ISIL’s financial network that could
move money through the financial sector.

Efforts to Disrupt Benefits to ISIL from the Sale of
Oil

As noted earlier, the
relative value of oil as a source of revenue to ISIL is diminishing. This
is largely due to the impact of coalition airstrikes on the oil-related
infrastructure under ISIL control. A key example of this is the targeting
of modular refineries that ISIL has stolen and used to refine crude oil drawn
from wells in territory where it operates. Our efforts to suppress the
sale of ISIL oil on regional markets have benefited from the steps the Turkish
and Kurdish authorities have taken to seize suspected ISIL-related shipments of
oil and oil products transiting their borders.

Kidnapping for Ransom (KFR)

Treasury has focused for
several years on engaging foreign partners to adopt “no concessions” policies
with respect to ransom payments for kidnapping. The aim has been to force
terrorists to abandon KFR as a practice by removing its underlying
incentive. In June 2013, G-8 members issued a communique rejecting the payment
of ransoms. Notably, last year, the UN Security Council approved
Resolution 2133, which underscored that the payment of ransoms to terrorists
creates more victims and perpetuates the hostage-taking problem. The UN
Security Council also expressed its determination to secure the safe release of
hostages without ransom payments or political concessions.

Despite these successes,
certain countries have adopted a de facto policy of allowing the payment of
ransoms on a case-by-case basis. We will
continue working with countries, particularly in Europe and the Middle East, to
adopt and implement no-concessions policies and take steps to prevent
kidnappings.

External Funding

Treasury has worked very
closely with partners in the Gulf to disrupt the flow of donations to a number
of terrorist organizations operating in the Middle East and elsewhere. Most recently, I traveled to Kuwait and Saudi
Arabia to share information about our understanding of ISIL's revenues and
financial activities, and to solicit their support for our efforts to counter
ISIL. Treasury officials will continue
to engage these and other countries in the region in the coming months to
broaden our information sharing about ISIL financing. We will continue to focus our efforts on
working with Qatar and Kuwait in particular to ensure that they fully implement
their international obligations by preventing terrorist financiers from
providing funds to ISIL.

ISIL's Financial Outlook

While we are actively working
to disrupt ISIL's financial activities, it is important to note that as the
sources of ISIL's wealth – notably the money stolen from banks and revenues
from oil sales – are either no longer replenished or diminish over time, we
expect ISIL will increasingly struggle to finance its operations. Just like any commercial enterprise whose
income is less than its expenses, ISIL's financial strength will diminish
unless it is able to find alternative sources of revenue or take additional
territory.

There are already signs that
ISIL is unable to provide fundamental services to the people under its control,
which Baghdad previously provided or subsidized. Notably, access to electricity, fuel, and
food in northern and western Iraq has decreased as ISIL has either taken these
resources outright for its own purposes or limited their distribution. Even if ISIL chose to use its wealth to
provide services to the millions of people it subjugates, which it apparently
is unwilling to do, its revenues are insufficient to fund the several billion
dollar annual budget that the Government of Iraq had previously allocated to
these areas.

Next Steps to Disrupt ISIL Financing

Much work remains to be done
with respect to disrupting ISIL’s revenue sources and financial
activities. Our efforts to date, of
course, will continue. We will: (1)
continue to gather information and take steps to prevent ISIL from gaining
access to the international financial system and cash resources; (2) disrupt
ISIL's sale of oil, both through coalition airstrikes and by working and
sharing information with regional partners; (3) press our foreign partners to
abide by their UN Security Council obligations to prevent ISIL from benefitting
from ransom payments; and (4) work to prevent donations from becoming a more
important source of revenue to ISIL.

Looking ahead, we will
continue to refine our approach. I want
to share with you today four relatively new lines of activity that Treasury is
pursuing to build on our current efforts.

First, we are working to
disrupt trade that continues to and from territory where ISIL operates that
benefits ISIL. In addition to taking control of oil wells and refining
equipment, ISIL has robbed and extorted other economic assets, such as grain
silos, weapons and other military-related equipment, and vehicles. ISIL
can use these assets to its financial benefit through transactions involving
neighboring countries. Additionally, transport vehicles throughout the
region continue to carry various supplies and cash to and from ISIL-held
territory. We will work with the governments and private sectors in these
countries to prevent ISIL from being supplied in this manner as well as from
extorting the transit of these vehicles.

Second, we are working to
prevent unregulated financial companies in Iraq and throughout the region from
providing support to ISIL. We remain
concerned that money services businesses in ISIL-held territory continue to
maintain connections to regional counterparts through which ISIL could conduct
funds transfers. Treasury officials are
traveling to the region later this week and we will work closely with the Iraqi
Government to bring these companies within its regulatory framework.

Third, we are targeting the
financial activities of foreign terrorist fighters going to Iraq and
Syria. Foreign terrorist fighters do not
represent a significant revenue source for ISIL, but targeting their financial
activities could help to stem the significant flow of foreign terrorist
fighters to Iraq and Syria, which amounted to more than 19,000 from more than
90 countries through December 2014.
Treasury will continue to work to develop and share information on
foreign terrorist fighter financial activity with partners in source and
conduit countries throughout the Middle East, North Africa, and Southeast Asia.

Finally, we are enlisting the
support of key partners to develop a common approach to countering ISIL's
financial activities. We intend to
build on work ongoing in the Financial Action Task Force (FATF), which issued a
statement in late October 2014 reiterating the need for all countries to fully
implement the FATF standards to combat terrorist financing, and calling on all
countries to take steps to prevent ISIL from accessing their financial
systems. Importantly, the U.S. and Turkey are co-leading a FATF project
to develop a common understanding of the terrorist financing risks posed by
ISIL, including how funds and other assets are raised, moved, and used by
ISIL. This report will be issued later
this month by the FATF with input from many FATF members, and will serve as a
baseline to further develop international efforts to counter ISIL's financial
activities.

Conclusion

In closing, I want to
reiterate what officials across this Administration and internationally have
made clear: that the fight against ISIL, financial and otherwise, is a
long-term endeavor. Nobody should expect this problem to disappear
overnight. But we are making progress each day in understanding how ISIL
operates and, in turn, disrupting its attempts to create chaos in Syria and
Iraq. We have had some important successes in denying ISIL revenue and
limiting its ability to make use of its funds, and we expect that we will
continue to undermine its financial strength in the months ahead.

Thank you.

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